TURNING AROUND A MORALLY BANKRUPT COMPANY

Publishing a resignation letter in the New York Times– as former Goldman Sachs executive, Greg Smith, did in mid-March - highlighted their “toxic” culture as a prime reason why he resigned. Amid denials, Goldman Sachs suffered a temporary (but quite spectacular) fall in their share price. For Greg Smith, it has led to a book deal with a reported advance payment of $1.5 million.

While this development has fuelled the question of whether Smith was airing legitimate concerns about the company’s ethics or merely being opportunistic and profiteering, it has also kept this incident in the news. The bigger impact has been to focus attention on corporate culture and to revive the debate about ethics in the financial world.

Corporate culture, generally viewed as “the way things are done around here”, is an influential factor in shaping the behaviour of employees. Ethical conduct is clearly a desired outcome – although a culture which is “toxic” or “morally bankrupt” does not suggest such behaviour.

Changing a culture to one which is distinguished by ethical conduct is not easy, but it can be done with leadership’s support and commitment.

Leadership and values shape culture

It is generally well recognized that leaders shape their company’s culture by their own behaviour which effectively demonstrates to their followers what is and isn’t acceptable. They also influence the company’s values, a key determinant of culture, by the extent to which they visibly live the values.

Perhaps less recognized is the fact that leaders also influence culture by the goals and strategies they pursue. Thus when leaders promote profits above all else - as Smith claims Goldman Sachs did - this results in a culture which sidelines the interests of the clients. It can also lead exploitative labour practices – as in the case of child labour used in factories in the East and on cocoa plantations in West Africa and South America.

To shift an organisation’s culture from toxic to ethical necessitates that leadership conduct sets the highest example of ethical behavior and that values comprise a key feature of the organisation and are clearly linked to employee’s role accountability.

Maintaining an ethical culture

But, achieving an ethical culture is not an automatic guarantee for the future.

Greg Smith acknowledged that culture used to be a vital part of Goldman Sachs’s success. That culture revolved around teamwork, integrity, a spirit of humility, and always doing right by their clients. By contrast, he wrote that “I look around today and see virtually no trace of the culture that made me love working for this firm for many years.”

Therefore, creating an ethical culture needs to be accompanied by an equal focus on maintaining it. Upholding the company’s ethical standards, retaining a high level of ethical awareness and regularly measuring and reporting on ethics all support the preservation of an ethical culture.

The reward for getting it right may be not appreciated at companies where the goal of profit at any cost dominates. But for many others, it offers the benefits of a more trustworthy environment characterized by sound employee and stakeholders relationships.